ALBANY, N.Y., March 6 – WellPoint, Inc., parent company of Empire Blue Cross Blue Shield, failed to meet bid requirements on a three-year $4.9 billion state contract for prescription drugs coverage for government employees and a new competitive bid should be conducted, according to Comptroller Alan G. Hevesi. After submitting its initial proposal, Empire was allowed to change its bid three times in order to meet three separate mandatory requirements, thereby violating contracting rules designed to ensure fair competition.

Under an agreement reached previously to prevent disruption of essential medical coverage for public employees, Empire will continue to provide drug coverage under an emergency contract until December 31, 2007 and may submit a new bid as part of a new competitive process ordered by the Comptroller, Hevesi said.

Our first concern is ensuring that 1.1 million employees, retirees and their families continue to receive the medicine they need, said Hevesi. That is why we allowed an interim emergency contract with Empire to continue service while we completed the contract review. It must be emphasized that while these business issues are being worked out, all employees and retirees will continue to receive all of their needed medicines. However, we must also ensure that the state gets the best possible contract and that contracts are awarded fairly. Since Empire was given an unfair advantage, the contract should be re-bid.

Lisa Greiner, corporate spokesperson for WellPoint, said, We look forward to providing prescription drugs coverage for the government employees of New York state through 2007 and to the potential re-bidding of the account at that time.

The RFP asked bidders to propose guaranteed discounts covering all drugs, including specialty drugs which are generally high cost drugs requiring special handling and administration, Hevesi explained. Empire and Group Health Insurance (GHI) each proposed a separate discount pricing structure for specialty drugs.

Empire Alters Bid

After the bids were submitted, Civil Service asked both companies to clarify their bids in relation to specialty drugs, according to Hevesi. At first, both Empire and GHI confirmed that their proposals differed from the RFP requirement with regard to the treatment of specialty drugs. When asked a second time, Empire changed its position. In response to questions from Civil Service, Empire also made two other material changes in its bid.

An agency is permitted to ask vendors to clarify their bids, but bidders cannot make material changes in a bid once it is submitted in order to make the bid complaint with the RFP, according to Hevesi. The purpose of public bidding is to allow all vendors an equal opportunity to submit proposals based on the same specifications. If a vendor is allowed the opportunity to materially modify its proposal after bids are submitted, it clearly has an unfair advantage.

GHI Protests

Hevesi also denied a bid protest by losing bidder GHI, who made two claims in its protest. The first was that its bid was responsive because it provided a reasonable alternative for providing specialty drugs. However, the Comptrollers Office has determined that the RFP and other information provided to vendors before the deadline for submitting bids were clear in requiring that specialty drugs be treated in the same manner as other drugs.

GHI also claimed that the state had a conflict of interest because the state owned shares in WellChoice, Empires parent company, and stood to gain from the sale of those shares, which would be more valuable if Empire won the contract, said Hevesi. GHI asserted that the decision about the contract should be made by non-state employees.

Division of Budget spokesperson Tiffany Galvin said the state owns $27 million worth of stock in WellPoint.

According to Hevesi, since GHIs bid was not responsive, it was not necessary to deal with their complaints, but did note that different units of state government often have assignments that are potentially competing. It is impossible to eliminate all possible conflicts. They must be managed properly to ensure that the interests of state residents are put first.

Ilene Margolin, senior vice president for Corporate Affairs at GHI, responded, We are pleased with his decision. We wanted an objective process and we are hoping that thats what will happen as a result of the re-bidding.